Comprehensive Policy Needed To Uplift Labuan Economy, Says Academic
By Jailani Hasan
LABUAN, Dec 24 (Bernama) -- A comprehensive and forward-looking policy framework is needed to revitalise Labuan’s economy that will fully leverage its strategic location, federal territory status and established offshore financial ecosystem, said an academic.
University Malaysia Sabah Labuan International Campus (UMSKAL) International Finance Faculty associate professor Dr Geoffrey Harvey Tanakinjal noted that Labuan, which became a federal territory on April 14, 1984, possesses unique characteristics distinct from Kuala Lumpur and Putrajaya, and has evolved into an international investment gateway since its declaration as an offshore financial centre in 1990.
“Labuan has long played multiple strategic roles, as an international financial centre, an oil and gas hub, a duty-free island and a gazetted federal port, and its location in the South China Sea, adjacent to Sabah and Brunei, gives it significant geopolitical and geo-economic advantages,” he told Bernama today.
However, Prof Tanakinjal noted that Labuan’s economic growth remains heavily dependent on the oil and gas sector, making it vulnerable to global commodity price fluctuations, while the weaker tourism performance and limited investment in new growth sectors have constrained broader economic expansion. “As such, a holistic policy is required to diversify Labuan’s economic structure, attract strategic investments and build long-term economic resilience,” he advised.
He said among the key rationales for a new policy is the over-reliance on oil and gas, the underutilisation of Labuan’s duty-free and offshore financial status, and the island’s untapped potential as a logistics, trade and tourism hub along major international shipping routes. Prof Tanakinjal noted that Labuan’s position as a federal territory allows the federal government to implement targeted policies and special allocations directly, without state-level constraints.
He said the proposed policy aims to raise Labuan’s local gross domestic product growth to between five and seven per cent annually, create at least 10,000 new jobs by 2030, attract a minimum of RM5 billion in foreign direct investment over five years, and position Labuan as a regional hub for finance, logistics, tourism and new energy in ASEAN.
Highlighting Labuan’s core strengths, he said the offshore financial ecosystem, regulated by the Labuan Financial Services Authority, provides a competitive platform for low-tax structures, Islamic finance, insurance, and fintech. Meanwhile, its duty-free status enhances the island’s appeal for trade, tourism, and lifestyle activities. “Labuan also has strong oil and gas infrastructure, including the Asian Supply Base, shipyards and fabrication facilities, and has been gazetted as an international transhipment hub suitable for logistics, re-exports and e-commerce,” he noted.
Prof. Tanakinjal said the new policy should prioritise these sectors - international finance, logistics and trade, oil and gas, new energy, tourism, agro and food security, education and the digital economy.
In international finance, he said Labuan International Business and Financial Centre should be strengthened through Islamic digital banking, green finance and fintech offerings, supported by the introduction of a digital asset sandbox to attract blockchain-based investments.
For logistics, he said Labuan could be developed into a regional free trade and e-commerce hub, with port modernisation including cold chain facilities to support agro-food and fisheries exports to markets such as Japan, South Korea and China.
“In the oil and gas sector, Labuan should move beyond upstream activities into downstream segments such as LNG bunkering, maritime fabrication and maintenance, while simultaneously investing in renewable energy, including solar, offshore wind and green hydrogen,” he added.
He said Labuan could be repositioned as a duty-free lifestyle tourism destination, featuring wellness resorts, yacht marinas and MICE tourism, alongside niche offerings such as World War Two heritage sites and coral reef-based eco-tourism.
In agro and food security, Prof Tanakinjal said Labuan has the potential to become a national model through deep-sea aquaculture, seafood processing for export and agro-tourism initiatives.
On education and the digital economy, he said Labuan could be developed into a digital nomad hub with high-speed connectivity and special visas, supported by the establishment of international satellite campuses in fintech, maritime and tourism, as well as investments in data centres and artificial intelligence.
He said the implementation should be phased over five years, from 2025 to 2030, beginning with strengthening the Labuan IBFC ecosystem and logistics infrastructure, followed by large-scale tourism, energy and agro projects, and culminating in Labuan’s emergence as a regional hub for data centres, AI and hydrogen exports. “With the right strategic policies, Labuan can be repositioned not only as a revived centre of trade and investment, but also as a strategic national asset linking Malaysia to ASEAN and East Asian markets,” Prof Tanakinjal added.
“Labuan has the potential to become a new growth engine for East Malaysia and contribute meaningfully to the nation’s long-term economic development,” he concluded.
-- BERNAMA